How does TrueFi generate yield?

TrueFi lending pools fund loans to borrowers who request loans from the protocol. Loans must be approved by the protocol and meet risk / return criteria set by the protocol. Uncollateralized lending has a higher risk profile than other markets and thus should provide higher returns.

How does lending on TrueFi work?

Lenders can lend stablecoins to TrueFi lending pools, which use predefined strategies to lend to creditworthy borrowers. See below for a brief demo:

TrueFi lending pools are controlled by TrueTrading, an affiliate company of TrustToken, Inc. The TrueFi lending pools only lend to a whitelist of trusted borrowers, and any excess capital that is not actively loaned out may be deployed in a DeFi protocol.

Lenders who lend to the TrueFi lending pool receive TrueFi lending pool tokens ("LP tokens"), which represent their proportion of lent capital in the TrueFi lending pool.

Is there a lockup period for lenders?

No. Lenders can redeem LP tokens any time idle funds are available in the pool. Lenders pay an exit fee in order to withdraw instant liquidity from the pool. This fee is calculated dynamically, depending on what proportion of the pool is idle vs. lent to borrowers.

Additionally, LP tokens can be traded on secondary markets, such as Uniswap.

Are there any fees for lending to the Lending Pools?

There are no fees for lending funds into lending pools. To withdraw funds, lenders may pay an exit fee.

What are the risks involved in lending to the TrueFi lending pool?

While borrowers are usually willing to pay higher rates for uncollateralized loans, these higher yields do not come without risks. Compared with collateralized lending, uncollateralized lending has two major risks:

• Potentially increased risk of loss: Protocols that require collateral are protected by that collateral in case of default. While this allows such platforms to be less selective in approving loans, uncollateralized loans come with a much higher standard of trust that must be met by a borrower. In case of default on an uncollateralized loan, a delinquent borrower will have been assessed for creditworthiness before the loan was made and will face both reputational damage and legal action.

• Potentially lower liquidity: While instant withdrawals are becoming a norm for new protocols, uncollateralized lending may not offer the same flexibility. Most borrowers for uncollateralized loans are interested in fixed-rate, fixed-term loans for predictable repayment. This means lenders who fund such loans need to be comfortable locking up their assets for the duration of the loan. TrueFi offers an alternative: the ability to withdraw their proportion of the pool tokens which would consist of stablecoins and loan tokens that you hold to maturity. You can redeem the loan tokens for the stablecoin at the end of loan terms.

You can learn more about how TrueFi mitigates risk here.

Who is responsible for taking legal actions against delinquent borrowers?

TrueTrading is currently responsible for pursuing legal recourse if a borrower defaults and may be replaced by another non-profit entity in the future as TrueFi progressively decentralizes.

How can lending pool token holders farm TRU?

Lending pool token holders can farm TRU by staking their lending pool tokens (tfTUSD, tfUSDC, tfUSDT, or tfBUSD) on the Farm page.

What are loan tokens?

Loan tokens are non-tradable ERC-20 tokens which represent the lender’s proportional representation in a loan that is issued from the Lending Pool.

Loan tokens are minted at a discounted rate, meaning that loan tokens paid back in full will converge to a price of 1.000:

# of loan tokens minted = principal + interest owed at loan maturity

Once a loan is funded, the borrower can call a function which allows them to borrow the funds from the smart contract. At the end of the term, once the borrower pays back the loan, loan token holders can exchange their loan tokens for an equivalent number of stablecoins.

What is the value of a loan token at any point of time?

The theoretical present value of a loan token is calculated by assuming the loan is repaid in full by the end of the loan term.

The following formulas walk through how lending pools value loan tokens (where loan token `0xabc` represents a single loan, and `t` represents time since loan origination):

Value of all 0xabc loan tokens minted = principal + (t / term ) x interest

Value of a single 0xabc loan token = (Value of all 0xabc loan tokens) / (supply of 0xabc loan tokens)

Value of a single 0xabc loan token = (principal + (t / term ) x interest)/(principal + interest)

In addition to earning yield from loan activity in DAO pools, lenders can also earn additional yield in the form of TRU rewards ("yield farming").

How do I farm TRU rewards?

TrueFi DAO Pool lenders begin accruing TRU rewards as soon as their LP tokens have been staked.

How do I check and claim my farm rewards?

How are TRU rewards distributed?

To find the current emissions rate for a farm, users can divide the totalAmount by duration. Visit the etherscan link to the smart contract, click on Contract, then click on Read as Proxy. You will find the two parameters totalAmount and duration. The duration is in seconds.

TRU distribution per day = (totalAmount/10^8) / (duration/(24*3600))

Liquidity Gauge TRU Distributor Smart contract

Are there additional economic risks involved in farming?

Farming on TrueFi lending pools involves no additional economic risk beyond risks involved as a lender. Users are inherently exposed to borrower default risk as a lender.

What is TRU?

How can I exit the lending pools?

You can exit the pool by selling your lending pool tokens to the TrueFi lending pools for the stablecoin if there is enough liquid asset in the pool to support the transaction. This feature is also called liquid exit.

What is Liquid Exit?

‌Liquid exit addresses a key community request which is the ability to exit the TrueFi Lending Pool directly into the underlying stablecoin. Lending pool token holders can redeem their LP tokens for the stablecoin for an exit fee.

The exit fee is inversely proportional to the amount of available idle liquidity in the pool. For example, when there is a large amount of liquid assets in the pool, the fee is low. When there is a small amount of liquid asset in the pool, the fee is high. This fee is earned by the pool for the existing lending pool token holders.

1) If there is no liquid asset in the lending pool and no liquid exit is deployed in Curve.

2) If the pool needs to liquidate its position in Curve and will incur a loss of more than 10 basis points.

What are Lending Pool tokens ("LP tokens")?

Lending Pool tokens (or "LP tokens") are tradable ERC-20 tokens that represent a lender’s proportional representation in the pool.

In the beginning, when no loans have been disbursed by the TrueFi lending pool, lenders will receive one TrueFi Lending Pool Token (tfTUSD, tfUSDC, tfUSDT, or tfBUSD) for every stablecoin lent to the pool.

As the pool starts earning yields and disbursing loans, the value of the pool tokens may increase or decrease depending on returns within the pool. The value of the pool represents the present value of all its underlying tokens (stablecoins, loan tokens, and other tokens earned).

How do I calculate LP token prices?

We can calculate LP token price by checking the poolValue() and totalSupply() read functions on the lending pool smart contract:

LP token price = poolValue() / totalSupply()

We can use this LP token price to find how many LP tokens a lender will receive in return for lending tokens to the pool.

Additionally, we can calculate the value of a lender's position at any point in time:

Lender's position value = (# of LP tokens held) * (LP token price)

Are LP tokens tradable on secondary markets?

Yes, LP tokens can be traded on secondary markets. There are existing markets on Uniswap v3 today.

Why is there a difference between calculated LP token price and its price on Uniswap?

LP token prices calculated by the lending pool assume that loans will be repaid successfully within the term, among other assumptions.

Other market participants may have use different assumptions in their calculation of LP token prices. There are several market factors that may govern the price of lending pool tokens and the TrueFi platform does not have any control over them.

What is the SAFU?

In case of a loan default, TrueFi lending pools will transfer all bad debt assets to the SAFU in exchange for the full expected value of those assets. Then, the SAFU will slash staked TRU tokens, up to 10% of the defaulted amount. If the value of these slashed tokens is not enough to cover the default, the SAFU will use its funds to help repay the affected lending pool for lost funds.

SAFU default handling

In the event of a default, the following occurs:

1. Up to 10% of TRU is slashed from the staking pool and transferred to the SAFU to cover the defaulted amount, equal to the principal amount plus the full amount of expected interest (“Defaulted Amount”)

2. All the defaulted LoanTokens will be transferred from the lending pool to the SAFU

3. If the current SAFU funds are insufficient to cover the defaulted loan; the SAFU can sell TRU for the respective borrowed asset at its manager’s discretion

4. If the value of the SAFU funds can not satisfy the defaulted loan:

   1. The difference between the defaulted loan and the SAFU is calculated (“Uncovered Amount”).

   2. The SAFU will issue ERC-20 tokens representing a claim for the Uncovered Amount (“Deficiency Claim”).

   3. Then, the affected lending pool will receive a Deficiency Claim for the Uncovered Amount, assuming its successful recovery.

   4. The affected lending pool will have a first-priority claim on the funds recouped through arbitration for the Deficiency Claim amount.

5. If a debt is repaid:

   1. The recouped funds will be used to purchase the asset that the Loan Token was originally denominated in, which will be transferred to the LoanToken contract.

   2. The SAFU will burn the Loan Tokens for the underlying value of those tokens (“Recovered Amount”)

   3. The SAFU is going to repurchase the issued Deficiency Claim tokens from the lending pool up to the Recovered Amount.

   4. If there is a remainder of the recovered funds after repurchasing the lending pool’s Deficiency Claim, the SAFU keeps those funds.

6. If any portion of the original loan amount is not repaid after the completion of the legal recovery process; the lending pool’s remaining Deficiency Claim tokens are going to be burned thus reducing the LP token price.

Smart Contract Architecture

The SAFU replaces what was called “Liquidator” in previous TrueFi versions. Therefore, it will have permission to slash TRU from the staked TRU pool.

The funds in the SAFU will be managed by an approved address, automating as much capital management as possible through DeFi. In the initial version, the funds' management will be somewhat centralized to maximize the capital efficiency when making exchanges between tokens. For example, the price impact of exchanging TRU on decentralized exchanges is much higher than the impact of OTC or centralized exchange opportunities.

Nevertheless, following the ethos of progressive decentralization, future unlocks will include updates to the SAFU which will further decentralize the management of the SAFU funds.

How do I lend?

Once a user is ready to lend, the user will need to complete two transactions:

Why do I see two options after I click 'Lend'?

The TrueFi app helps to find lenders the best price when they lend to the pool.

Lenders can choose between (i) lending funds directly to the pool and minting LP tokens, or (ii) buying LP tokens on a secondary market (Uniswap).

In the example shown in the screenshot below, the UI shows that the user may be able to get a better price and incur lower gas costs by going directly to Uniswap to get tfUSDC.

TrueFi Lending Pool smart contracts

Has TrueFi been audited?

Yes, please see TrueFi's technical audits here.

How does TrueFi mitigate risk?

TrueFi takes multiple measures to help protect lenders:

• Staked TRU provides default protection for lenders and governs the loan approval process

• Borrowers on TrueFi follow a thorough Know Your Business (“KYB”) workflow and credit review which incorporates both on-chain and off-chain data, such as company background, repayment history, operating & trading history, assets under management, and credit metrics.

• TrueFi handles bad debt via a Secure Asset Fund for Users (“SAFU”) smart contract.

• TrueFi lenders can also purchase smart contract cover through Nexus Mutual to hedge risks when lending on TrueFi. Coverage is paid out at the discretion of mutual members but has covered technical exploits in the past.

This is not investment advice. Please Do Your Own Research.